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How retained earnings are driving the automotive buy/sell market – Ryan Kerrigan | Kerrigan Advisors

On today’s episode of Inside Automotive, we’re diving into the red-hot automotive buy/sell market with Ryan Kerrigan, Managing Director of Kerrigan Advisors. With projections showing potential for over 400 transactions this year, breaking all previous records, it’s clear that despite some dips in profit margins, the industry is alive with activity and investment. Join us as we explore the factors driving this unprecedented surge and what it means for dealerships nationwide.

Key Takeaways 

1. The automotive buy-sell market is experiencing unprecedented activity levels, with projections suggesting that 2024 could see over 400 transactions, marking an all-time high. This transaction surge continues the strong market performance seen in previous years. In 2023, the industry came close to this milestone, and the momentum has carried forward, indicating robust demand for dealership acquisitions and consolidations.

2. Despite a downturn in profits, which have decreased slightly from the highs seen in recent years, the automotive retail sector continues to thrive. This resilience is due primarily to substantial retained earnings within the industry. Many retailers are sitting on significant cash reserves and are eager to reinvest in the industry rather than diversifying into other sectors like real estate. This ongoing investment is a key driver of the sustained high level of buy-sell activity.

3. In the current market, deal valuation is increasingly centered on recent financial performance. Buyers are placing a premium on the most up-to-date earnings, often focusing on the trailing 12 months and the latest quarterly results. This shift is due to rapidly changing market dynamics, which have moved away from averaging pre-COVID and COVID-era earnings. The emphasis on current performance reflects buyers’ desire to ensure they are making informed investments in a volatile environment.

4. There is a notable trend of increasing involvement of outside capital in the automotive retail industry. While traditional private equity firms face restrictions in obtaining OEM approvals, other forms of professional capital are being creatively integrated with dealership groups. This influx of external funding has enabled some of the fastest-growing dealership groups to expand significantly. The number of stores owned by groups backed by outside capital has grown by approximately 45% year-over-year, highlighting the transformative impact of this trend.

5. Texas has emerged as a robust market for buy-sell transactions, driven by robust economic growth, business relocations, and population increases. The state’s major metropolitan areas, such as Austin, Dallas, and Houston, are seeing high levels of interest and activity. In contrast, despite facing regulatory and operational challenges, California continues to see large deals due to its market size and affluence. This dual focus on Texas and California underscores the diverse regional dynamics in the automotive buy-sell market.

"At the current track record, we'll actually be above 400 transactions." – Ryan Kerrigan

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